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Informist, Friday, May 16, 2025

By Cassandra Carvalho

MUMBAI – The three-day interbank call money rate Friday ended below the Reserve Bank of India's Standing Deposit Facility rate of 5.75% due to ample surplus liquidity in the banking system. Traders had expected money market rates to rise slightly due to increased need for funds from banks to meet cash reserve requirements in view of the reporting fortnight. However, rates did not rise as expected as the call market is open Saturday.

The three-day call money rate closed at 5.45% and the weighted average rate ended at 5.84%. The triparty repo rate, where mutual funds are major lenders, closed at 5.50%. Trade volume in the overnight call market was INR 148.71 billion, down from INR 167.81 billion Thursday. Total money market volume, including tri-party repos, was INR 5.99 trillion, same as Thursday.

The rates remained low as banks had already maintained adequate funds with the RBI as cash reserves for the current fortnight, dealers said. The cash balance of banks with the central bank was INR 9.23 trillion Thursday, down from INR 9.32 trillion Wednesday. Earlier in the week also, some banks had reduced their reserves maintained under the central bank's cash reserve ratio mandate, nearing the end of the fortnight. On Thursday, the RBI had net absorbed INR 2.23 trillion from the banking system, higher than INR 1.84 trillion Wednesday.

Money market rates will likely rise by 5-10 basis points next week due to outflows for Goods and Services Tax payments. Traders estimate a systemic outflow of INR 1.25 trillion to INR 1.75 trillion for the payment.

State-owned banks and large private banks were largely lenders in the call money market on Friday. However, some banks were hesitant to lend in the unsecured market, dealers said. Smaller scheduled commercial banks and primary dealerships were on the borrowing side.

"The liquidity is very skewed, some banks like PSUs (state-owned banks) and large private sector banks have enough buffers," a dealer at a private bank said. "Other private banks have to borrow to fund their requirements."

As is usual, traders preferred triparty repos due to the lower rates. The rate in the triparty repo market fell to a low of 5.01% during the day. The weighted average rate in the market was 5.64%, below the RBI's Standing Deposit Facility rate.

The central bank's three-day variable rate repo auction held Friday was subscribed for INR 52.93 billion, lower than the notified amount of INR 250 billion. Primary dealerships were the major bidders at the auction, dealers said. Traders from primary dealerships were also the most active borrowers in the CROMS--Clearcorp Repo Order Matching System, dealers said.

Informist had Thursday reported that senior RBI officials would meet bank executives to discuss the liquidity management framework. Traders await the outcome of the meeting, which is expected to take place Wednesday. Some traders expect the central bank to cease its daily variable rate repo auctions by the end of the month or beginning of June. Others said the central bank was unlikely to do so, or could introduce other measures to infuse liquidity such as long-tenure auctions instead.

"We need to wait and see what the RBI discusses with banks and how it aims to conduct liquidity operations in the future," a trader at a primary dealership said. "...Already there is speculation that the RBI's dividend to the government could be higher if it is reviewing the economic capital framework and decides to lower its reserves." The RBI's Central Board of Directors met Thursday to review the economic capital framework of the central bank.

OUTLOOK

* On Saturday, the two-day call rate will likely open below the RBI's repo rate on comfortable liquidity surplus.

* As is usually the case on Saturdays, call money market volumes will likely remain low.

* During the day, the call rate is seen in a range of 5.50-6.00% and the triparty repo rate in a range of 5.40-5.80%.

* Traders await the central bank's transfer of surplus for FY25 to the central government, which is expected to be around INR 3 trillion. Informist had reported that the RBI's Central Board of Directors is likely to meet on May 23 to discuss and approve the transfer of surplus. The transfer will likely reflect in the banking system late July, dealers said.

CALL RATE

5.45%--Friday close for three-day loans

5.90%--Friday open for three-day loans

5.50%--Thursday close for one-day loans

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Below repo; no impact seen on rates after RBI skips 14-day VRR

MUMBAI – The three-day inter-bank call money rate opened at 5.90% for the seventh consecutive day, below the repo rate, due to ample liquidity surplus in the banking system, dealers said. The omission of the Reserve Bank of India's 14-day variable rate repo is unlikely to have any impact on borrowing rates during the day, dealers said. 

"Overnight VRR is only not being fully subscribed, so there's no point in having a 14-day VRR," a trader at a primary dealership said. "No one will want to borrow for 14 days." The central bank Thursday said in a release that it would not conduct the 14-day operation for the coming fortnight on a review of evolving liquidity conditions. On May 2, the central bank had conducted its main fortnightly auction after nearly two months to underwhelming demand.

Rates in the call money market have been stable this week, not rising above 5.95%, due to surplus liquidity in the banking system, dealers said. Some dealers say that the spread, or arbitrage, between lending rates in different segments of the money market is not profitable at these levels, which has led to "conservative lending". 

Rollover demand from primary dealerships is likely on Friday. The settlement of the central bank's gilt purchase at the open market operations auction on Thursday for INR 250 billion is also due Friday. 

On Thursday, the RBI had net absorbed INR 2.23 trillion from the banking system, higher than INR 1.84 trillion Wednesday. Traders now await the central bank's transfer of surplus to the central government, which is expected to be around INR 3 trillion. The RBI's central board of directors is likely to meet on May 23 to discuss and approve the transfer of surplus to the Centre for 2024-25 (Apr-Mar), Informist reported Thursday. 

As for the RBI's three-day variable rate repo auction, traders expect total subscription of INR 50 billion, against a notified amount of INR 250 billion Friday. Dealers expect the RBI to announce the conclusion of the daily auctions it had announced on Jan. 15 by the end of May or at the post-policy conference by RBI Governor Sanjay Malhotra on Jun. 6, due to a consistent surplus in the banking system. (Cassandra Carvalho)

End

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Edited by Ashish Shirke

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